Sitting Around the Table

May 12, 2022

Dow Jones         31,807
S&P 500              3941
NASDAQ            12017
Oil                    $104
Gold                 $1852


It Doesn’t Mean anything if you don’t Sell

If you want to make a lot of money in the market, then hire a very young advisor or broker in his or her 20s who has been well trained and let her go. She will be someone who has never seen a bear market and therefore has never participated in one. She will be completely unimpeded by the thought that stocks can ever go down, and thus she will invest with a fury on the upside.

When all is said and done, the client will be wiped out probably because the investor bought on margin, stocks with a serious alpha on the upside and thus when those stocks decline, they decline with a vengeance. Probably a year or so ago, we were sitting down with the son of one of our people who works for a major bank investing billions while still in his 20s. He’s telling us about this stock and that stock and how much ahead each position is. He’s up a fortune.

We sat down with him the other day and we asked how it was going? You could tell by their face, not very well. What he did not know is that some of us do have photographic memories and can recall every stock he mentioned and the price he mentioned at. This is not a blessing by the way. There are many things in life you would like to edit out of your memory, as you well know.

His average position was down between 80% and 90% from the high. We asked him about his sales, and that was the killer. He did have big gains in all of them. He never sold. Obviously, he thought it was all going higher and that is the crucial lesson that investors must learn. Unless you are truly in it for the very long term then and only then should you have money invested in stocks that you go out years and years with. Warren Buffett is the epitome of that kind of investor.

A stock that comes to mind that you can own for years is Boeing Symbol BA. We put it on the list at $129.10 and watched it double and go to basically around 260, and then decline back. In this case, we have a reason why we did not sell. We think Boeing is one of those stocks that if you buy it here and hold it for 8,9,10 years, it will be $1,000 per share. Why, because the commercial aviation business and defense are going to get bigger and bigger, and Boeing is a major participant in that business – in fact, they dominate it. All the problems in the last couple of years will be long forgotten and they will eat their competitor Airbus for lunch at some point. This is not to say we will not sell when it does double again, but if we do, we will remind you that we think this stock monster can go up again and again over the next five to ten years.

The reality is that a stock profit is not a profit unless you take the profit, and when you have big profits, you should take them and pay the taxes and look for the next big move in other stocks.  You can see by looking at the stocks we sold this year that we have taken very big profits over the last several years not just this year. Sometimes you can have such a big winner that it skews your profits disproportionately in one direction. We had that with Macy’s which we sold recently for a 333% gain. We bought it when everybody hated it, and then the world fell in love, and we sold it back. Occidental Petroleum gave us almost five times on our money recently. Remember, everybody thought it was the end of oil, and now we have gone through two quarters where oil seems like the only game in town.

But you have got to take the profit. Gains don’t mean anything if you allow them to retreat back to where you bought them or even losses. What you have to realize is that it is very difficult for people, meaning investors to take profits. Leon Levy who was one of the founding partners of Oppenheimer and Company back in the 1950s used to say that he proved in a treatise he wrote that only 5% of investors are capable of selling anywhere near the high.

The rest are always looking for more. And then when the stock retreats, they say, okay, I will sell it the next time it hits the high. The stock retreats further, and they repeat the strategy again. It goes lower and lower and they never sell. We have told the story before of the investor who walks in and says, “I have a problem I am trying to figure out.” He then proceeded to tell us about a dot com stock he invested only about $15,000 into. He held it through the boom and it went to $2,500,000. You heard right, $15,000 into $2,500,000.

He then tells us that the stock declined and he never sold. We asked, “What’s it worth now.” The response was $12,000. “All right, you are saying the stock went from 15 grand to 2 ½ million and now it’s back down to $12,000, what’s the question.” He said, “Should I double up?”  This happened over a 15-month period, the advance and the retreat during the dot com bubble. Of course, this is funny, but it is also terribly tragic and will affect some investors for the rest of their lives.

The moral is that a stock profit is not a profit until you take the profit. Don’t try to get the last dollar out of a stock. We will never be first at the bottom, or the last ones out at the top, nor do we want to be. Alan “Ace” Greenberg the modern creator of Bear Stearns was one of our mentors. He always said, “I treat stocks like toilet paper, they are there for a reason and that reason is not to fall in love.” Let them make you money, that’s all.

This market we are in is grinding itself towards a bottom. Many stocks are capitulating. Some stocks will go to absurdly low prices when this happens. That is why it is important to know what you own and believe in it. We have to recommend stocks as we move towards the bottom because only the liars can tell you where the bottom is. This is our type of market. This is where you find true value, and then as stocks move the upside-down road, ultimately that value gets exaggerated. And that’s where you want to give the stocks right back to the buyers at the top.

The game has NEVER changed through the decade. Whether it’s the Cuban Missile Crisis, the Berlin Crisis, the Viet Nam War, the Jimmy Carter energy crisis of 1977 with gas lines around the corner, Oil embargos, Currency Crashes, Inflation Crisis, Covid Pandemics, Russian Ukraine War, all it, it doesn’t matter. Buy the right stuff, use a little timing, and you will make out more than all right. We have been doing this for decades, and it never changes. Twenty years doing this online and we have always made profits. We are going to do it again now. Stay tuned for more.

Your Friends At

Value Stock
A referral is the best compliment.
Feel free to forward this email to friends and colleagues.